WEAKNESSES

Risk assessment

Gradual upturn in growth after the Ebola virus outbreak

Guinea's economic growth declined in 2015 following the spread of the Ebola virus, which resulted in a health crisis. The World Bank estimates the losses linked to the virus at between 0.7% and 2.3% of GDP for the 2014-2015 period. Activity is expected to pick up in 2016, driven by the industrial, mining and tertiary sectors.
The building and electricity sectors, sustained by significant public spending and the international financial community, should stimulate activity thanks to the inauguration of the Kaleta dam, which is expected to double the country's energy capacity by 2020. In the mining sector, despite the fall in commodity prices, the start of production in late 2015 of a new bauxite mine, operated by the Chinese Hongqiao Group, should boost momentum in the sector and drive up mining-related export revenues. The sector is also expected to benefit from investments in the Simandou project, aimed at creating access to one of the world’s largest untapped iron ore deposits, building a new railway line linking the southeast of Guinea to the coast and a new deep water port. In the tertiary sector, growth is likely to be driven by trade and transport, which are set to benefit from the recovery in cross-border trade and construction. In this context, public investment is likely to rise substantially following the upturn in infrastructure work and work to maintain communication routes. Private investment will remain limited by investors' risk avoidance related to the Ebola virus. Consumption is also expected to pick up thanks to the expected increase in wages. Inflation is expected to remain high, but will continue to decline in 2016, moderated by a slight dip in prices for domestic foodstuffs.

Worsening current account imbalance

The budget balance is expected to decline in 2015, thanks to the continuation of measures aimed at containing the deficit (fuel subsidy cuts, improved tax collection, recovery of arrears, civil service reform). While spending undertaken in response to the Ebola virus should be controlled, there is still a risk that the government will increase it in the run up to the 2015 presidential elections. On the revenue side, the application of the new mining code is expected to encourage the launch of new projects and thus generate additional tax income. The sums saved as a result of the debt relief will be allocated to support investment and reduce poverty. The public debt, on its way down, will remain sustainable. Nonetheless, the risk of over-indebtedness must be monitored, because of the country's vulnerability to external shocks, potentially damaging to growth, exports, FDI flows and budgetary performances.The large current account deficit is expected to deteriorate further in 2016, reflecting the substantial increase in imports of electronic and electrical equipment, intermediate goods and hydrocarbons, as well as imports of capital goods necessary for the implementation of investment projects. These imports are likely to be only moderately offset by aid and exports, which are set to increase with the start of production at the new bauxite mines. The balance of services deficit is also likely to widen, due to the high cost of imports, transport and insurance and the growing demand for technical services techniques (know-how, technology, R&D…).

Re-election of the outgoing president and persistent governance shortcomings

Alpha Condé, Guinea's outgoing President was re-elected in the first round of presidential elections in October 2015, winning 57.8% of the votes cast. The result was contested by the opposition, alleging electoral fraud and pointing to geographic inequalities in the distribution of voter registration cards. The controversial result exacerbated the social and political tensions and there were several clashes between opposition members and the police.
The fragile internal political situation is still a source of concern in a region marked by latent instability in Mali and Guinea-Bissau. The president has meanwhile established closer diplomatic and trade ties with the countries of the Gulf and China, underlined by a series of Chinese investments in the mining sector in particular. A co-operation agreement with the EU was signed in December 2014. This should enable Guinea, provided there is political stability, to draw on European development funds for co-operation in the following areas: rule of law, urban sanitation and health. Finally, despite the efforts made on regulatory quality, the country still suffers from poor governance and a very difficult business climate (Guinea is in 165th place out of 189 countries in the Doing Business ranking for 2016).